Nexen Inc. (TSX, NYSE: NXY) today reported it has been informed by
the Government of Yemen that its application to extend the
Production Sharing Agreement (PSA) on Block 14 (Masila) has not
been accepted. As a result, the PSA will expire on December 17,
2011. The block will then be operated by a newly created Yemen
national operating company.
"The Masila discovery started Nexen's long and mutually
beneficial association with Yemen and its people," said Marvin
Romanow, Nexen's President and CEO. "While we're disappointed we
did not receive an extension, we're proud of the accomplishments
we've achieved there. Our operations at Masila have generated
significant value for our company, enabling us to deploy the cash
flow to build our current portfolio of legacy assets."
Nexen first entered Yemen in 1987 and has, since that time,
produced more than 1.1 billion barrels of oil. Total field
production at Masila peaked in 2003 at 225,000 barrels of oil per
day (bbls/d). Nexen's share of production in 2011 is expected to be
about 24,000 to 28,000 bbls/d (14,000 to 16,000 bbls/d after
royalties).
The decrease in our overall production volumes resulting from
the contract expiry will be mitigated by the start-up of the Usan
project, offshore West Africa, which is expected to begin
production in the first half of 2012. This change in production mix
is expected to contribute to higher cash flow from operations in
2012 as Usan's anticipated netback is about double the Yemen
netback at current prices.
The PSA expiry will not have any effect on Nexen's reserves, as
we did not book any barrels beyond the PSA term. Similarly, all
capital costs have been amortized over the contract period.
Nexen's PSA for Block 51 (East Al-Hajr) in Yemen, which
currently produces about 6,000 to 8,000 bbls/d net to Nexen (3,000
to 4,000 bbls/d after royalties), expires in 2023. We are currently
evaluating alternatives with respect to Block 51 and future
activities in the country.
Nexen Inc. is an independent, Canadian-based global energy
company, listed on the Toronto and New York stock exchanges under
the symbol NXY. Nexen is focused on three growth strategies: oil
sands and shale gas in Western Canada and conventional exploration
and development primarily in the North Sea, offshore West Africa
and deepwater Gulf of Mexico. Nexen adds value for shareholders
through successful full-cycle oil and gas exploration and
development, and leadership in ethics, integrity, governance and
environmental stewardship.
Forward-Looking Statements
Certain statements in this release constitute "forward-looking
statements" (within the meaning of the United States Private
Securities Litigation Reform Act of 1995, as amended) or
"forward-looking information" (within the meaning of applicable
Canadian securities legislation). Such statements or information
(together "forward-looking statements") are generally identifiable
by the forward-looking terminology used such as "anticipate",
"believe", "intend", "plan", "expect", "estimate", "budget",
"outlook", "forecast" or other similar words and include statements
relating to or associated with individual wells, regions or
projects. Any statements as to possible future crude oil,or natural
gas ; future production levels; future royalties and tax levels;
future capital expenditures, their timing and their allocation to
exploration and development activities; future earnings; future
asset acquisitions or dispositions; future sources of funding for
our capital program; future debt levels; availability of committed
credit facilities; possible commerciality of our projects;
development plans or capacity expansions; the expectation of
cheaper and more technologically advanced operations; the expected
design size of our operations; the expected timing and associated
production impact of facilities turnarounds and maintenance; future
ability to execute dispositions of assets or businesses; future
sources of liquidity, cash flows and their uses; future drilling of
new wells; ultimate recoverability of current and long-term assets;
ultimate recoverability of reserves or resources; expected finding
and development costs; expected operating costs, future cost
recovery oil revenues from our Yemen operations; the expectation of
negotiating of an extension to certain of our production sharing
agreements; estimates on a per share basis; future foreign currency
exchange rates, future expenditures and future allowances relating
to environmental matters and our ability to comply therewith; dates
by which certain areas will be developed, come on stream or reach
expected operating capacity; and changes in any of the foregoing
are forward-looking statements. Statements relating to "reserves"
or "resources" are forward-looking statements, as they involve the
implied assessment, based on estimates and assumptions that the
reserves and resources described exist in the quantities predicted
or estimated, and can be profitably produced in the future.
All of the forward-looking statements in this release are
qualified by the assumptions that are stated or inherent in such
forward-looking statements. Although we believe that these
assumptions are reasonable, this list is not exhaustive of the
factors that may affect any of the forward-looking statements and
the reader should not place an undue reliance on these assumptions
and such forward-looking statements. The key assumptions that have
been made in connection with the forward-looking statements include
the following: that we will conduct our operations and achieve
results of operations as anticipated; that our development plans
will achieve the expected results; the general continuance of
current or, where applicable, assumed industry conditions; the
continuation of assumed tax, royalty and regulatory regimes; the
accuracy of the estimates of our reserve volumes; commodity price
and cost assumptions; the continued availability of adequate cash
flow and debt and/or equity financing to fund our capital and
operating requirements as needed; and the extent of our
liabilities. We believe the material factors, expectations and
assumptions reflected in the forward-looking statements are
reasonable, but no assurance can be given that these factors,
expectations and assumptions will prove to be correct.
The forward-looking statements are subject to known and unknown
risks and uncertainties and other factors which may cause actual
results, levels of activity and achievements to differ materially
from those expressed or implied by such statements.
Such factors include, among others: market prices for oil and
gas; our ability to explore, develop, produce, upgrade and
transport crude oil and natural gas to markets; ultimate
effectiveness of design or design modifications to facilities; the
results of exploration and development drilling and related
activities; the cumulative impact of oil sands development on the
environment; the impact of technology on operations and processes
and how new complex technology may not perform as expected; the
availability of pipeline and global refining capacity; risks
inherent to the operations of any large, complex refinery units,
especially the integration between production operations and an
upgrader facility; availability of third-party bitumen for use in
our oil sands production facilities; labour and material shortages;
risks related to accidents, blowouts and spills in connection with
our offshore exploration, development and production activities,
particularly our deepwater activities; direct and indirect risks
related to the imposition of moratoriums, suspensions or
cancellations of our offshore exploration, development and
production operations, particularly our deepwater activities; the
impact of severe weather on our offshore exploration, development
and production activities, particularly our deepwater activities;
the effectiveness and reliability of our technology in harsh and
unpredictable environments; risks related to the actions and
financial circumstances of our agents, counterparties, contractors,
and joint venture parties; volatility in energy trading markets;
foreign currency exchange rates; economic conditions in the
countries and regions in which we carry on business; governmental
actions including changes to taxes or royalties, changes in
environmental and other laws and regulations including without
limitation, those related to our offshore exploration, development
and production activities; renegotiations of contracts; results of
litigation, arbitration or regulatory proceedings; political
uncertainty, including actions by terrorists, insurgent or other
groups, or other armed conflict, including conflict between states;
and other factors, many of which are beyond our control.
The impact of any one risk, uncertainty or factor on a
particular forward-looking statement is not determinable with
certainty as these factors are interdependent, and management's
future course of action would depend on our assessment of all
information at that time. Although we believe that the expectations
conveyed by the forward-looking statements are reasonable based on
information available to us on the date such forward-looking
statements were made, no assurances can be given as to future
results, levels of activity and achievements. Undue reliance should
not be placed on the forward-looking statements contained herein,
which are made as of the date hereof and, except as required by
law, Nexen undertakes no obligation to update publicly or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise. The forward-looking
statements contained herein are expressly qualified by this
cautionary statement. Readers should also refer to the Risk Factors
contained in our 2010 Annual Information form, and to the
Quantitative Disclosures about Market Risk and our Forward Looking
Statements contained in our 2010 Management Discussion and
Analysis.
Cautionary Note to US Investors
In this disclosure, we may refer to "recoverable reserves",
"recoverable resources", "recoverable contingent resources" and
"prospective resources" which are inherently more uncertain than
proved reserves or probable reserves. These terms are not used in
our filings with the SEC. Our reserves and related performance
measures represent our working interest before royalties, unless
otherwise indicated. Please refer to our Annual Information Form
available under our profile on SEDAR at www.sedar.com for further
reserves disclosure.
Cautionary Note to Canadian Investors
Nexen has received an exemption from the securities regulatory
authorities in the various provinces of Canada from certain
requirements of National Instrument 51-101 Standards of Disclosure
for Oil and Gas Activities ("NI 51-101") that permits us to
disclose reserves estimates and related disclosures that have been
prepared in accordance with SEC requirements.
As a result of this exemption, Nexen's disclosures may differ
from other Canadian companies and investors should note the
following fundamental differences between reserves estimates and
related disclosures prepared in accordance with SEC requirements
and those prepared in accordance with NI 51-101:
-- SEC reserves estimates are based upon different reserves definitions and
are prepared in accordance with generally recognized industry practices
in the US whereas NI 51-101 reserves are based on definitions and
standards promulgated by the Canadian Oil and Gas Evaluation Handbook
("COGE Handbook") and generally recognized industry practices in Canada;
-- SEC reserves definitions differ from NI 51-101 in areas such as the use
of reliable technology, areal extent around a drilled location,
quantities below the lowest known oil and quantities across an undrilled
fault block;
-- the SEC mandates disclosure of proved reserves and the Standardized
Measure of Discounted Future Net Cash Flows and Changes Therein
calculated using the year's monthly average prices and costs held
constant whereas NI 51-101 requires disclosure of reserves and related
future net revenues using forecast prices and costs;
-- the SEC mandates disclosure of reserves by geographic area whereas NI
51-101 requires disclosure of reserves by additional categories and
product types;
-- the SEC does not require the disclosure of future net revenue of proved
and proved plus probable reserves using forecast pricing at various
discount rates;
-- the SEC requires future development costs to be estimated using existing
conditions held constant, whereas NI 51-101 requires estimation using
forecast conditions;
-- the SEC does not require the validation of reserves estimates by
independent qualified reserves evaluators or auditors, whereas, without
an exemption noted below, NI 51-101 requires issuers to engage such
evaluators or auditors to evaluate, audit or review reserves and related
future net revenue attributable to those reserves; and
-- the SEC does not allow proved and probable reserves to be aggregated
whereas NI 51-101 requires issuers to make such aggregation.
The foregoing is a general description of the principal
differences only. The differences between SEC requirements and NI
51-101 may be material for certain properties. Please also
note:
-- we use oil equivalents (boe) to express quantities of natural gas and
crude oil in a common unit. A conversion ratio of 6 mcf of natural gas
to 1 barrel of oil is used. Boe may be misleading, particularly if used
in isolation. The conversion ratio is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead; and
-- because reserves data are based on judgments regarding future events
actual results will vary and the variations may be material. Variations
as a result of future events are expected to be consistent with the fact
that reserves are categorized according to the probability of their
recovery.
Nexen has also received an exemption from NI 51-101 that permits
us to forego the requirement to have our reserves and related
future net revenue attributable to our reserves evaluated, audited
or reviewed by an independent qualified reserves evaluator or
auditor. Accordingly, our future net revenue and reserves estimates
are based on internal evaluations. Due to the extent and expertise
of our internal reserves evaluation resources, our staff's
familiarity with our properties and the controls applied to the
evaluation process, we believe the reliability of our internally
generated reserves estimates is not materially less than would be
generated by an independent reserves evaluator.
Contacts: Janet Craig Vice President, Investor Relations (403)
699-4230 Pierre Alvarez Vice President, Corporate Relations (403)
699-5202 Nexen Inc. 801 - 7th Ave SW Calgary, Alberta, Canada T2P
3P7
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